Pound Sinks on U.K. Election Results

Stocks geared to the U.K. economy fell sharply Friday while the pound slumped after British voters deprived Prime Minister Theresa May and her ruling Conservative party of a majority in Parliament.

Sterling was last down 2.4% at $1.2641 as investors feared a hung Parliament would usher in a fresh period of political uncertainty and make it more difficult for the U.K. to secure a favorable deal in its negotiations to exit from the European Union.

Continue Reading Below

"Brexit still goes ahead, but who is negotiating and what their position is and whether they can do a deal and get it passed through Parliament is less clear," said John Stopford, head of multiasset income at Investec Asset Management.

London's FTSE 100 index, which generates roughly 70% of its revenues overseas, rose 1.3% in the early minutes of trading as exporters benefited from a weaker currency. Shares of British American Tobacco, which has almost no revenue ties to the U.K., rose 2%.

But companies who generate the bulk of their revenues in the U.K., including Lloyds Banking Group, Taylor Wimpey and Barratt Developments PLC fell 3.4%, 5.2% and 3.3% respectively. Stocks in the U.K. have historically fallen in the short-term following news of a hung parliament.

"We expect U.K. risky assets to come under pressure, as markets will start pricing in a scenario of high political uncertainty, a growth slowdown and possibly disorderly Brexit," said Daniel Vernazza, chief U.K. economist at UniCredit Research

Longer term, some investors see a move away from fiscal austerity and the possibility of a "softer" Brexit as potentially supportive for U.K. assets. But "at the moment, the market is focusing more on the uncertainty than any change in direction of monetary and fiscal policy" that could result, Mr. Stopford said.

Earlier, Japan's Nikkei pushed back above 20000 as the dollar climbed against the yen, supporting exporters in the index. Shares of SoftBank jumped to 17-year highs following a surge in Alibaba shares in the U.S. The Japanese firm owns 28% of the Chinese internet heavyweight.

Korea's Kospi was up 0.8% and in fresh record territory, helped by a rise in shares of Samsung Electronics, which has the biggest weighting in the index.

Stock-market moves elsewhere in the Asia-Pacific region were more muted. Benchmarks in Australia were flat, while Hong Kong's Hang Seng Index fell 0.5%.

The moves followed a quiet session in the U.S. as investors appeared to show little reaction to Mr. Comey's testimony Thursday about interactions with President Donald Trump before his firing.

In commodities, Brent crude oil futures were down 0.2% and gold eased 0.3% as both were weighed down by a stronger dollar. The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was up 0.4%.

Write to Riva Gold at riva.gold@wsj.com and Lucy Craymer at Lucy.Craymer@wsj.com